Engie is in flux, busily rebalancing its portfolio including putting the exploration & production arm under review. So these are tough times for E&P’s chief executive, writes Jeremy Cresswell
A few weeks ago, it was reported that French energy group Engie was in talks with Centrica regarding a package of North Sea assets, though both companies dismissed the “speculation”.
However, it was hardly surprising as Engie, previously GDF Suez, had put its exploration & production business under “strategic” review as part of a wider potential divestment programme. The company is a major low-carbon energy player and wants to grow that side of what is already a large business.
This is the uncertain world of Maria Moraeus Hanssen who, in a moment of self-deprecation when speaking at the Energy Institute dinner in Aberdeen late February, joked about the very idea of a Norwegian working in Paris, let alone in a senior role.
We suppose that ‘A Norwegian in Paris’ doesn’t quite trip off the tongue quite like the show title ‘An American in Paris’.
Hanssen is the CEO of Engie Exploration & Production International and is therefore heavily involved in determining the future of what is a modest business in the grand scale of things Engie.
She has been involved with the French group then known as GDF Suez since January 2014 when she became MD of its Norwegian E&P arm, graduating to the top job in Q4 last year.
It is a year since GDF Suez was remodelled as Engie via a strategic restructuring known internally as the “Enterprise Project”.
It was announced that the group would simplify its organisation; there would be 24 business units; all of which went live on January 4 this year.
In February, Engie revealed that it is planning to sell up to 20billion euros ($22.3billion) worth of assets over the next three years, as the gas and power group is also aiming to speed up its cost-cutting and low-carbon plans.
Whether that will eventually result in the sell-off of prime E&P assets like the UK North Sea Cygnus gas project expected onstream this summer remains to be seen.
E&P accounts for just short of 2,000 out of 155,000 jobs worldwide at Engie. Its contribution to revenues has shrunk sharply due to the oil price slump, even though its portfolio is strongly weighted towards gas.
Hanssen points out that E&P is a separate company where Engie is one of two shareholders. The other is CIC (China Investment Corporation), one of the largest sovereign funds of China and which has held 30% since 2011.
Therefore, does the China link have anything to do with recent speculation regarding Engie selling out of E&P?
“No, I don’t think that provides ground for speculation,” says Hanssen. “If you look at the presentation of the 2015 annual results of Engie on February 26, the group’s executive management explained the 2016-18 transformation plan.
“The E&P activity is mentioned as a potential divestment within that programme. But it is also important to understand that nothing has been decided.
“Obviously selling into today’s (depressed) market is something that the management of Engie (group level) and the E&P business would be rather reluctant to do and there are other ways of reducing (group) Engie’s exposure to E&P.”
When she took up her current role in October, Hanssen already knew that she was the person who might lead E&P out of the group. Chuck in falling commodity prices and the backdrop is exceptionally tough.
“If you’re a realistic leader of an E&P business today, you will know that things are challenging and restructuring is a part of any CEOs agenda, whether Engie or one of our competitors,” she replies.
“Taking a step back, I started working for Engie in October 2014 and it’s been an interesting journey since due to what has happened to commodity prices . . . oil & gas markets.
“But then again I have the advantage of having been in this business since I started university in Trondheim in 1984, so I’ve seen things go up and down before.”
Meanwhile, life goes on, Engie has to keep on driving forward with its global portfolio and seeking to realise the best from it, variously through development, production and assets trading. It’s the usual mix of operated and non-operated.
Hanssen: “One tends to think differently about operated assets versus non-operated ones. Among the major operated assets we of course have Cygnus, the Gjoa field in the Norwegian sector; a portfolio of operated assets in The Netherlands and the same in Germany. We also have the Touat development which we operate together with Sonatrach in Algeria.
“Its difficult to say which is the most exciting one. In the case of Cygnus, it’s a large project for sure. My main concern over the last couple of months has been the weather and the delays this can cause. I’ve also been concerned about the safety of workers during what has been a harsh period.
“However, we are hopefully moving towards a calmer time. We didn’t make the progress we were hoping for during the winter but if we get a bit of luck now with the weather then we should see good progress. There are more than 500 people working offshore just now.”
As for when Cygnus makes it into production, that’s a tough one. Maybe next month, perhaps June. But Hanssen is clear; first gas will happen only after everything is completed, tested and fully compliant with the authorities and Engie’s own rule book.
Cygnus has been a tough nut from day one and indifferent commodity prices haven’t helped. Everyone talks about the oil price, but creeping globalisation is beginning to impact on gas markets too and this could damage the North Sea, ergo, the long-term futures of new gas hubs like Cygnus.
“I fully agree,” says Hanssen. “It’s easy to communicate around the oil price. But our portfolio is about two thirds gas and so we are mainly exposed to (regional) gas prices.
“Up to now we have had hedging programmes in place and that has partially dampened the effects of falling commodity prices. But going forward, there will be less of that and we’ll just have to restructure ourselves so that we can be profitable at whatever commodity prices we meet in the market.”
So does she think that the fact Engie’s portfolio is weighted towards gas lends a market advantage at this time?
Hanssen: “It’s a good question and there are several ways of looking at that. The UK and Norwegian governments see gas as part of the energy future, especially in Europe. So having gas in the portfolio is one of our strong cards though, when it comes to short-term profitability, sometimes we get higher returns from oil projects.
“But, in the more long-term portfolio, I feel very comfortable with having a strong weighting towards gas. There’s nothing we can do about the prices so we’ll just need to make sure we do what we can do, which basically means being high-performing and cost-efficient.”
An active part of that long-term portfolio is the Gjoa field in the Norwegian sector and which Hanssen says is doing very well and sees as a hub for future potential tie-ins.
“We have been able to increase gas export capacity, touching 20million cu.m per day now. This is a major step-up from when the project was sanctioned.
”However, this summer we will have a short shut-down because we need to re-bundle compression to enable us to move into lower pressure.
“We’re also going to drill an exploration well in the vicinity of Gjoa this year, because, obviously, there is a need to bring new resources into the facility.”
Except that she admits the company “hasn’t yet cracked the exploration code” of the area surrounding Gjoa. This means the well planned for this year is important. It helps too that there will this summer be exploration activity by other companies further to the north and perhaps within tie-back range should any come good.
Another important Norwegian asset is Engie’s 40% stake in the Njord field, including the Noatun discovery, which is operated by Statoil and is now the subject of major redevelopment.
Njord and its satellite Hyme field were reported in February as being scheduled for shut-down next month to enable a major overhaul.
“Njord is in the Norwegian Sea and, due to structural integrity issues with the (production) facilities, they are going to be disconnected, brought to a port, refurbished and later reinstalled,” says Hanssen.
“We will of course be following this redevelopment closely and it is going to be a main focus in the Norwegian sector in the years to come.”
Known as the Njord Future Project, it is apparently still progressing toward concept and yard selection during H1 this year, with a final investment decision (FID) and field development plan (FDP) submission expected in Q4.
During the second half of this year, Statoil aims to spud a well on a new prospect on the north flank of Njord, close to the main field. If successful, this would add further volumes to the Njord Future Project.
However, other than projects in hand such as the foregoing, does the current uncertainty regarding possible sale of Engie E&P mean that all other spending is on hold pending clarity on the future?
“Of course we’re looking at things closely, but both the Dutch and German portfolios contain a series of smaller projects that will likely be subject to sanction on a running basis over the years to come. Some of these are scalable, which is good,” says Hanssen.
“Other projects like Touat (phase one EPCC contract awarded August 2013) were sanctioned under a very different price environment and they need to go through.”
And so the challenge continues. In our conversation with Hanssen we started out with commodity prices and yes it’s a difficult market with lots of assets for sale too. But she agrees it is also an opportunity.
“Obviously, we need to get costs down and performance up,” she adds. “I think everyone is working very hard but it is an uncomfortable time. Hopefully we will get to a more normalised situation in a year or so.”
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